More Precious Metals Miners To Shut Down

This is an interview with Rick Rule on the Metals & Minerals Investment Conference in San Francisco.

Last year, there were over 200 companies at the Conference while this year there are only 70 companies. Is this an indicator of the bottom?

Rick Rule: I think this is a very good indicator of a bottom. Diminished participation, both in terms of the number of attendees and the number of issuers is a very good thing. We have not seen professional capitulation in this market, issuer capitulation. But this may be a good forward indicator of just that. It may be a good forward indicator of issuer capitulation which is always the mark of a market bottom.

What if gold would continue its decline?

Rick Rule: I buy precious metals, at least gold and silver, for insurance purposes. If the price goes down, it means my insurance premium goes down. What rational consumer wouldn’t value lower priced premiums? Most gold and silver buyers have a very different point of view. They’re buying it as punters, they’re buying it as speculators, and they have a crisis of confidence when it goes down as opposed to goes up. I buy it as a store of value, and as an insurance policy.

The mining companies and investors are demoralized. You are bullish?

Rick Rule: This is ebullient. I was just at Mines & Money Sydney and I think I am the only bullish voice in Australia. I can say without a doubt that as depressed as this market is, the Australian market is more depressed, which is a different way of saying better.

Why being comfortable and confident in buying right now?

Rick Rule: It doesn’t mean I’m going to be right in the near term. The TSX.v is (down) 75% in three years which means that the market is 75% less risky. Every set of circumstance that existed in 2010, every argument for the bull market, exists today. What’s different, is that the stocks are off by three quarters. What part of that shouldn’t people like?

What resource stocks should have most interest: copper, uranium, gold?

Rick Rule: Yes, yes, and yes. I am particularly attracted to companies that are being produced for a cost that exceeds their sales price. I am particularly interested in industries that are in liquidation. Uranium is in liquidation. Will it go up next year or the year after? I don’t know but I think it’s a three or four year double. I’m more attracted to platinum and palladium, because they’re precious metals, but they’re precious metals with a difference. The supply demand scenario is more in their favor.

Will precious metal mines shut down?

Rick Rule: Absolutely. Imminently. Scotiabank says that on a total cost of production basis (which includes exploration costs and acquisition costs) that the all in cost to produce an ounce of gold industry wide, worldwide, is $1,760 an ounce or something like that. So you make this stuff for $1,760, you sell it for $1,260. You lose $500 and being a miner you try to make it up on volume. This is profoundly tough math.

It’s frustrating because they are wasting their asset.

Rick Rule: Most mining company managements don’t believe in their product. Most people who are in the gold mining business are in the gold mining business because their cost of capital is low. If gold miners believed in gold mining, they would hold their working capital in gold. They mouth the sort of precious metal story about how gold is better than dollars, but they keep their working capital in dollars. Don’t confuse the interests of management as being in every way aligned with your interests. More companies should be having mergers and amalgamations if they were caring about their shareholders. Mergers imply that part of the management team goes to management heaven and stops getting salaries. Managers think in terms of what is to them, real yield which is yield to managers. If you understand that you’ll understand their behavior.

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